Sterling jumps against the dollar as markets in retreat after healthcare failure casts doubt on US President Donald Trump's pro-business agenda

Negative drivers dominated market outlooks at the start of the week (Source: Getty)

Jasper Jolly

Markets started the week in sell-off mode as investors around the world took in the aftermath of US President Donald Trump’s failure to force through healthcare reform.

Sterling gained aggressively against the US dollar on Monday morning with the pound rising to highs of $1.2580 after finishing last week almost a cent lower. The euro gained by similar amounts against the dollar, aided by strong data at the end of last week.

The FTSE 100 lost more than 65 points at the time of writing, with 93 of its constituents seeing their share price fall.

The widespread market weakness follows the decision by Trump and Speaker of the House of Representatives Paul Ryan to drop the American Health Care Act, after facing opposition from the left and the right of their party.

The healthcare reform bill itself was of relatively little importance to investors, despite the central political importance to the Republican party platform of the repeal and replacement of the Affordable Care Act, known as Obamacare.

However, the difficulty Trump faced in passing the bill, despite the Republicans holding a majority, has seen investors cast doubt on the prospects of his planned fiscal stimulus programme of tax cuts and infrastructure spending.

Trump blamed the opposition Democrat party for the defeat on Friday, but has since lashed out at the right wing of the Republican party, including the ultra-conservative Freedom Caucus. He said Democrats were “smiling” because of their opposition to his bill.

Democrats are smiling in D.C. that the Freedom Caucus, with the help of Club For Growth and Heritage, have saved Planned Parenthood & Ocare!

Kathleen Brooks, research director at City Index, said the bill “was a major litmus test for the President, who has an aggressive policy agenda.”

She said: “Not only does the failed healthcare bill highlight the challenges Trump may face trying to get his other policies passed, but the Congressional Budget Office also highlighted that the savings expected from Trump’s healthcare bill would be much less than expected, which could limit the size and scope of his infrastructure spending plan.”

The yield on government debt across Europe narrowed as investors retraced their steps in moving money from bonds into equities since Trump was elected. Investors tend to buy bonds when returns in stock markets start to look riskier.

The yield on German benchmark 10-year debt, which moves inversely to prices, fell to its lowest point since 8 March, according to Tradeweb. UK 10-year gilt yields fell to their lowest point since 1 March.

The bearish moves across global markets could have some way further to run, according to Kit Juckes, global strategist at Societe Generale.

He said: “Bond bears need some barnstorming data to remind us that the economy is in decent shape. Sadly, the most exciting US data of the week comes in the form of personal income and spending data on Friday.”